Lump sum investments

You have a wide range of options available for investing a lump sum. Choosing the right one for you will depend on the size of your lump sum, the length of time you wish to invest for, and the amount of investment risk you are comfortable with. Deciding on the right type of investment will also depend on whether you want to invest for income or for capital growth.

Lump sum investment options

Options that you may want to consider when investing a lump sum include:

  • Shares are units of ownership in companies. Shares can rise or fall in value, and they can entitle you to a share of the profits (called dividends). Investing directly in shares on the stock market has the potential to produce better investment returns than cash or bonds, but usually involves a higher level of risk. Visit our guide to share dealing for more information.

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  • Bonds represent money on loan to a company or government. They repay the capital at the end of the loan (the maturity date) and in the meantime you receive a fixed rate of interest (the coupon). You can wait until the bond matures or you can sell your holding to other investors. Bonds, like shares, can rise or fall in value. The main risk involved is that the company or government defaults on the loan – or seems likely to, which can cause the bond price to fall. For this reason government bonds (known as gilts) are seen as less risky than corporate bonds. Most individual investors prefer to invest in bonds through a fund – see next point…
  • Investment funds are a type of collective investment in which your money is pooled with that of other investors in return for a share in a ready-made portfolio. Funds might invest in shares, bonds, property or a mix of asset classes. Investing through a fund can help you to reduce some types of investment risk by spreading your capital across different assets. Goals and risk vary widely between different investment funds – read our guide for more details.

Find out more about other options available by reading our guide to investing for beginners. If you don’t want to expose your money to investment risk, you may want to explore different savings options.

Tips for making the most of your lump sum investment

  • Take a long-term view. Typically, the longer you can afford to give up access to your capital, the more time it will have to recover from short term dips in the market and achieve growth (although this isn’t guaranteed – the value of investments can fall as well as rise).
  • Use your ISA allowance. You get a new ISA allowance ever tax year. This year it's £15,240 and in April 2017 it will rise to £20,000. The allowance is per person, so a lump sum belonging to a couple can be invested using each individual's ISA allowance. ISAs shelter your lump sum investment from both Income and Capital Gains taxes.
  • Check regularly on the progress of your investments, to make sure they're still suitable for your needs and goals.

Further reading…

If you're ready to invest your lump sum on your own…

Which investment platform you choose can have a strong bearing on your long-term investment returns, because they all have different ways of charging you.

We built a comparison tool so you can estimate the total charges from different platforms to help inform your choice.

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If you'd prefer to get investment advice…

Investing a lump sum can feel like a big decision. If you're not ready to make investment decisions on your own, get in touch with a financial adviser who can recommend suitable investments for you.

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Last updated: 05 April 2016